Thursday, February 12, 2009

Friday Watch

Late-Night Headlines

- The Obama administration’s housing plan will use government money to help reduce interest rates for struggling borrowers, while asking lawmakers to approve more ways to modify mortgages, according to a person briefed on the proposal. U.S. Treasury Secretary Timothy Geithner intends to make the plan public in coming days, possibly within a week, said the person, who declined to be identified before the announcement. Some elements can begin immediately, and others must be considered by Congress. The government will subsidize interest-rate reductions by working with the servicers that handle mortgages, the person said. That way, servicers can lower monthly payments for households without shortchanging investors. The new plan, which isn’t final and could change, would be voluntary for lenders and investors, the person said. It is aimed at loan modifications that have a positive net present value, meaning that the cost of a foreclosure would be higher than that of adjusting the loan terms. Like earlier efforts from the Federal Deposit Insurance Corp. and housing industry groups, the new plan will make use of interest-rate reductions, loan extensions and so-called principal forbearance, in which part of a mortgage’s principal is deferred to the end of the loan’s term. All these measures will be used to help homeowners reach an affordable monthly payment, the person said. That monthly housing payment, compared with their income, will be the focus of the program, rather than achieving a target interest rate. Borrowers won’t need to be in foreclosure proceedings to take advantage of the program, the person said. The new program also will create a common standard for loan modifications, to replace the range of standards used in currently available programs. The new loan modification program will be combined with a push for more authority from Congress, the person said. The Obama administration wants to allow judges to change loan terms under some conditions, and it also wants to permit modifications on Federal Housing Administration and Veterans Administration loans, which currently can’t be changed. Community groups want to give judges the power to lower mortgage rates for borrowers in bankruptcy, a provision that the banking industry opposes. Investors have said this provision could cripple the secondary mortgage market and raise interest rates for all borrowers. President Barack Obama said on Feb. 10 that this proposal, commonly called “cramdown” authority, will not be part of the administration’s initial housing program. Obama said cramdowns are “one potential provision that has been discussed, that I’m supportive of, but is not in this package. It will be in a separate package.”

- Jim Chanos’s Kynikos Associates Ltd., a short seller of Fairfax Financial Holdings Ltd., learned of negative analyst research on that company before it was published, according to unsealed court documents. Chanos, Steven Cohen’s SAC Capital Advisors LLC and other hedge-fund managers were accused in 2006 by Fairfax of cooperating to drive down the firm’s shares through short sales, according to a complaint by Fairfax seeking $6 billion in damages. Toronto-based Fairfax owns U.S. and Canadian insurers. Chanos forwarded an e-mail about research by John Gwynn, an analyst with brokerage Morgan Keegan & Co., to rival SAC Capital, the documents show. Morgan Keegan fired Gwynn for telling clients before publication that he planned a negative report. Morgan Keegan and Gwynn were also sued. All defendants denied Fairfax’s claims. Fairfax filed that e-mail and others provided by the defendants with a New Jersey state court to support its claims.

- Global steel demand may take at least six months to recover as job losses slow in the U.S. and people resume buying cars and home appliances, said Paul Zuckerman, head of New Zealand’s second-biggest steelmaker. Crude steel production in China, the world’s largest maker of the alloy, fell 11 percent in December, the fourth straight decline from year earlier levels, the National Bureau of Statistics said yesterday. Stockpiles in Shanghai jumped 22 percent to 1.8 million tons last week, the highest since at least June 2006, according to Beijing Antaike Information Development Co. data.

- Total assets on the Federal Reserve’s consolidated balance sheet fell for the sixth straight week to $1.84 trillion as credit conditions improved, allowing banks to borrow in private markets. The Fed’s holdings of loans, bonds, short-term notes and commercial paper hit a record of $2.31 trillion on Dec. 17. Total assets stood at $1.85 trillion on Feb. 4 and $1.92 trillion on Jan. 28.

- Wells Fargo & Co.(WFC), the second-biggest U.S. home lender, said its fourth-quarter loss was wider than first reported because of additional costs tied to securities holdings.

- Individuals and political-action committees representing securities and investment firms contributed $146 million to federal political campaigns in 2007 and 2008, according to the Center for Responsive Politics, a Washington-based research group that tracks money flows in U.S. politics.

- China, the world’s largest buyer of iron ore, will demand a bigger cut in prices from BHP Billiton Ltd. and Rio Tinto Group than from Brazil’s Cia. Vale do Rio Doce after shipping costs plunged, the nation’s steel association said.

- India’s rupee will weaken almost 10 percent to a record low of 54 to the dollar by the end of the year as the worldwide credit crisis curbs foreign direct investment, HSBC Holdings Plc said. The rupee may also extend last year’s 19 percent slide as employers cut jobs overseas amid a global recession, reducing remittances from Indian workers abroad, Richard Yetsenga, HSBC’s Hong Kong-based strategist, wrote in a research report today.

- Investors should lower their holdings in China stocks, Asia’s best performers in the last three months, and instead buy Taiwanese shares, UBS AG said. China was cut to “neutral” from “overweight” by Niall MacLeod, a Hong Kong-based strategist at UBS, as the market will “take a breather” after rallying since November. Taiwan was raised to “overweight” from “underweight” because technology shares may start to outperform, the strategist added.

Wall Street Journal:

- Private-equity firms and companies they own that want to buy back their troubled debt at a discount could reap a windfall from the economic-stimulus package headed for final votes in Congress. A measure to allow companies to defer income taxes when they repurchase their own debt at a discount made it into the final deal with the help of Sen. Max Baucus, the Montana Democrat who heads the Senate Finance Committee. The break will allow companies restructuring debt to defer possible taxes for as long as five years, then pay the taxes over the next five years.

- Eastern Europe, which narrowly survived the global financial crisis with help from the International Monetary Fund, now faces a second shock wave: Industry is slumping along with exports to Europe's wealthier West. Economic data for 2008's fourth quarter, due Friday, are expected to show growth collapsing in countries such as Poland, the Czech Republic and Slovakia, which had coped relatively well with the crisis.

- High technology and diversified tech conglomerates that made efforts to shape the stimulus plan emerged as big winners in the draft bill expected to come up for a vote Friday. General Electric Co.(GE), whose chief executive, Jeff Immelt, serves as a White House adviser, will likely benefit from a dozen provisions in the bill, from appliance rebates to water-treatment spending and wind-energy tax breaks. Google(GOOG) Inc. and Microsoft Corp.(MSFT) stand to benefit from billions of dollars slated for technology infrastructure, environmental and educational projects aimed at improving U.S. competitiveness. The bill sets aside $4.4 billion to upgrade the nation's electrical grid, an issue championed by Google CEO Eric Schmidt, GE and other tech companies. Congress also set aside $19 billion for health information technology that would digitize health records and set privacy and data standards. Wind and solar power companies lobbied to win a tax break to encourage investment in renewable fuel. But the nuclear-energy industry lost a $50 billion loan-guarantee program that had been included in the legislation until late in the negotiations. Tech companies gained strong allies in environmentalists, who pushed for provisions including $8 billion for high-speed rail, $8.4 billion for public transit, $6 billion for clean drinking water programs and $5 billion for weatherization programs. The National Science Foundation will receive $3 billion for research funding, a move cheered by many in the high tech and science communities, which have bemoaned a lack of research funding in recent years. Intel Corp.(INTC), the chip giant, said it benefits in several ways from the package. Overall, many tech companies are indirect beneficiaries of the stimulus package as the government begins spending on a variety of new programs. PC makers, for example, could see modest revenue increases as government grants to update computer facilities in community colleges and other schools begin filtering out. Cisco Systems Inc.(CSCO), which makes gear for computer networks, hailed provisions in the bill that target "areas that we play in like broadband and health care and smart grids for electrical uses," Cisco Chief Executive John Chambers said recently in an interview. The bill allocates $7 billion to expand broadband access in areas with little or no Internet access, a potential boon for equipment manufacturers along with cable and phone companies.

- Wall Street banks may have precipitated the financial crisis. But hotel companies feel like they are the ones taking the blame. Congress has restricted corporate travel for companies that accept bailout money, and big corporations are canceling conferences out of fear that it will smack of conspicuous consumption. "Congress has done a great job of killing the resort hotel business with the way they've criticized the number of financial firms from having conferences," Loews Corp. Chief Executive Officer James Tisch said in a conference call with investors this week.

- New Hampshire Republican Sen. Judd Gregg withdrew from consideration as Commerce secretary Thursday, saying his differences with the Democratic White House ran too deep. The announcement was a fresh embarrassment for an administration rocked by a number of setbacks. While his recent predecessors each lost one or two early cabinet nominees, Mr. Obama has lost three less than a month into his term. And Mr. Gregg's withdrawal comes two days after a bank rescue plan was widely panned by financial markets and lawmakers from both parties, partly because of its lack of detail. Mr. Gregg said he and the administration "did not adequately focus" on policy disputes, citing the handling of the census and the stimulus package. Mr. Gregg was Mr. Obama's second choice for Commerce secretary; earlier, Democratic New Mexico Gov. Bill Richardson pulled out following word of a grand-jury investigation into contracting practices in his office.

- President Obama’s inaugural address was long on somber warnings of tough days ahead, short on pretty pictures of paradise awaiting. Mr. Obama began talking of an economic slump that could last years, and using words such as "catastrophe" to describe what might unfold. This week, he talked of potentially irreversible damage to the economy. If the goal was to head off irrational exuberance, it worked. More than half the country now says it expects the recession to last as long as three years. A new poll from the Pew Research Center for the People and the Press shows that 30% of Americans now say the country is in a depression, up from 20% as recently as December. The grim language served another purpose: It was designed to create a sense of urgency in Congress to get the stimulus bill passed quickly. If Rome is burning, nobody would want to be seen doing too much fiddling. The flip side of containing exuberance is the risk of chilling confidence. And that's not a good thing when the biggest economic danger lying ahead is a vicious downward spiral in which Americans stop spending, prompting more layoffs, depressing spending further, producing more layoffs, with no obvious end in sight. Average Americans as well as the financial markets look more than a little scared right now. While that fear actually has been useful for Mr. Obama in pushing through the stimulus plan, it now may be time to engage in a little Franklin Roosevelt-style, all-we-have-to-fear-is-fear-itself soothing. It's worth remembering that the country survived some pretty horrific economic problems in 1974 and 1975, and again from 1980 to 1982. False hope isn't useful, but neither is a lack of hope.

- The nation faces a foreclosure crisis of historic proportions, and there is an understandable desire on the part of the federal government to "do something" to help. House Judiciary Chairman John Conyers's bill, which is moving swiftly through Congress (and companion legislation introduced by Sen. Richard Durbin) would allow bankruptcy judges to modify home mortgages by reducing both the interest rate and principal amount on the loan. This would be a profound mistake.
- Sector leaders in the U.S. natural-gas-production business are wrapping up their bleakest winter in years, and prospects are clouded by oversupply, icy credit markets and a global recession. This past week, U.S. natural-gas supplies stood at 2,020 billion cubic feet, or 44 billion cubic feet more than last year at this time and 24 billion cubic feet above the five-year average.

- Analysts say Hewlett-Packard(HPQ) will at the very least meet Wall Street's earnings and revenue forecast due to strength from its software and services business when the technology giant reports results on Wednesday.

- Microsoft Corp.(MSFT) on Thursday hired a 25-year veteran of Wal-Mart Stores Inc. to oversee the development and opening of the software giant's first retail stores.
- Rates on 30-year-fixed mortgages fell this week, offering homeowners a chance to refinance their loans, Freddie Mac said Thursday. The average rate on a 30-year fixed mortgage dropped to 5.16 percent this week from 5.25 percent last week. A year ago, the 30-year, fixed-rate mortgage averaged 5.72 percent.

NY Times:

- Increasingly, many older people who live alone are not truly alone. They are being watched by a flurry of new technologies designed to enable them to live independently and avoid expensive trips to the emergency room or nursing homes.
- This comes from one Web metric among many, so take it with a grain of salt. But according to AdMob, one of the largest mobile Web ad networks, Apple’s (AAPL) handsets now dominate mobile Web traffic in almost every category. According to AdMob’s analysis of the billions of ad requests it saw in January: The iPhone OS now represents 51% of U.S. smartphone traffic, leaving RIM’s (RIMM) BlackBerry (19%) and Microsoft’s (MSFT) Windows Mobile (14%) in the dust.


- A stringent plan to regulate hedge funds’ leverage, capital and risk management that is backed by Obama adviser Paul Volcker won the support today of an influential Democratic senator. Sen. Jack Reed, D-R.I., chairman of the Senate Banking subcommittee on securities, said hedge fund oversight should go beyond proposals to register the pools with regulators. Registration would provide “a little more visibility into the hedge fund world, but nothing comprehensive,” Mr. Reed told a Brookings Institution conference in Washington.


- Congress is moving forward on an ambitious project to impose new government reins on the financial markets. A House panel on Thursday cleared a measure to expand regulation of complex financial instruments and the authority of a small federal agency. The legislation authored by Rep. Collin Peterson, D-Minn., chairman of the House Agriculture Committee, also would prohibit trading in credit default swaps — a form of insurance against loan defaults — in cases where investors don't own the underlying bonds. The legislation would require the use of clearinghouses to provide transparency for transactions in credit default swaps and other derivatives, the complex financial products that have ballooned in global trade and, critics say, pose a threat to the system's stability.


- YouTube, the hugely popular online video site, has renewed a global licensing deal with Sony Music Entertainment which allows it to continue showing music videos of artists like Beyonce and Avril Lavigne, people familiar with the talks said on Thursday.

Financial Times:
- France on Friday will press for tighter controls on hedge funds, urging other big industrialized nations to strengthen regulation of the industry and compel banks that lend them money to hold more capital. Paris wants the European Union, and eventually all leading economies, to beef up indirect regulation of hedge funds via their prime brokers, the banks which provide them with loans and other services. Under plans to be floated by Christine Lagarde, French finance minister, banks could face higher capital requirements to reflect the riskiness of their hedge fund clients, a proposal likely to be resisted by banks that are already struggling to raise capital. Ms Lagarde will present the plans to her Group of Seven nations counterparts in Rome tonight in the hope that they can be adopted by the G20 summit of leading and emerging economies in London on April 2.

Globe and Mail:
- Canada is well-positioned to take advantage of moves by auto makers to bring electric vehicles and other fuel-efficient technologies to market, say analysts who have studied these developments. The opportunities for Canada are exemplified by Ford Motor Co.'s partnership with Canadian auto parts manufacturer Magna International to produce a fully electric car that goes up to 160 kilometers on a single charge.

Late Buy/Sell Recommendations
- Reiterated Buy on (MMC), target $28.

- Reiterated Buy on (MFE), boosted target to $37.

- Reiterated Buy on (TOL), target $24.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures +.32%.
NASDAQ 100 futures +.46%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (ANF)/1.00

- (PEP)/.88

- (WYN)/.40

Economic Releases

10:00 am EST

- Preliminary Univ. of Mich. Consumer Confidence for February is estimated to fall to 60.2 versus 61.2 in January.

Upcoming Splits
- (LPHI) 5-for-4

Other Potential Market Movers
- The (JACK) shareholders meeting and (HAS) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

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